U.K.’s Biggest Companies Lower Tax Rate With Overseas Business

Jan. 14 (Bloomberg) -- The biggest U.K. companies paid
taxes at a lower rate for the fourth consecutive year, in part
by garnering more profit overseas even as Starbucks Corp. and
Google Inc. caused public outcry by avoiding levies in Britain.

The effective tax rate for FTSE 100 companies, the largest
traded on the London Stock Exchange, fell to 24.5 percent from
35.8 percent in 2009, according to UHY Hacker Young, a London-based accounting company.

“Reductions in corporate taxes around the world --
including tax cuts in the U.K. -- have helped multinational
companies reduce their tax payments,” the firm said in an e-mailed statement.

U.K. Business Secretary Vince Cable said in December that
governments should coordinate across borders to make companies
pay more tax. Cable’s recommendation came after members of
Parliament lambasted , the world’s largest coffee-shop operator,
as well as Amazon.com Inc. and Google Inc. for using complex
accounting methods to reduce tax liabilities in the country.

“It’s called capitalism,” responded Google Chairman Eric
Schmidt, while London Mayor Boris Johnson challenged the
government to change the rules rather than blame the businesses.
Starbucks, based in Seattle, volunteered to pay more taxes in
Britain.

Part of the issue is that companies are being “given a
hand by governments around the world,” according to Roy
Maugham, head of taxes for UHY Hacker Young in London.

Google Bermuda

Google cut its 2011 rate almost in half, avoiding about $2
billion in worldwide income taxes, by shifting $9.8 billion in
revenue into a Bermuda shell company, according to its filings.

“International competition to attract corporate tax
revenues is as fierce as ever, with countries offering new
enticements to businesses in the form of allowances, reliefs or
tax cuts,” Maugham said in the statement.

Aggreko Plc, the world’s largest provider of mobile power
supplies, boosted after-tax profit in the six months ended June
30 at a faster clip than revenue or operating profit as it
reduced its tax rate to 26 percent from 28.5 percent.

SABMiller Plc’s tax rate dropped to 27.5 percent in the six
months through September, from 28.5 percent. The brewer of
Grolsch and Peroni has received a declining proportion of
revenue from Europe for three consecutive years, while Latin
America is its biggest source of profit.

UHY Hacker Young said that while the headline U.K.
corporate tax rate is set to reduce to 21 percent in 2014, some
businesses have moved their headquarters from Britain after
looking at the whole picture, including policies on profit
realized in other countries. The U.K.’s system “remains
uncompetitive,” it said.

Leaving Britain

More than 20 companies left the U.K. for tax reasons from
2007 to 2011, according to the accounting firm. The government
will be encouraged by tax-law changes that prompted a few to
return, including WPP Plc, the world’s largest advertising and
marketing company, it said.

An “anti-abuse” rule that may be considered by the U.K.
government to limit tax avoidance could drive more companies
away, the accountants said.

WPP had moved to Ireland, while countries including Canada,
Finland, Greece and New Zealand have more recently cut headline
corporate tax rates and Italy is offering more tax relief, UHY
Hacker Young said.

The averages used in the study are taken from effective tax
rates reported by FTSE 100 companies in their latest annual
reports or by their investor relations teams in the 12 months
ended Oct. 31. The effective rate is the value of global tax
charged as a percentage of global profit.